Smith Electric Vehicles to Retrench, Revise Planned Expansion to US

2 July 2008

Based on supply chain and cost issues, the UK-based Tanfield Group is retrenching its Smith Electric Vehicles (SEV) business. In a trading update published 1 July, in advance of its interim results, the Tanfield Group said that its Directors have made “two key strategic decisions” based on several factors. First, it will postpone the move to a dedicated electric vehicle production site. The current facility has sufficient capacity headroom for 18 months, the company said.

Second, the company is revising its planned expansion in the US. Rather than establish a major production facility in the US with the capacity to produce up to 10,000 electric trucks per year from 2010 as announced in December (earlier post), Tanfield said that any expansion “is now likely to be executed through a joint venture with a business that already has facilities and infrastructure in the US in a related industry.”

Tanfield said that it is in discussions with a number of industry partners in this regard.

Demand for its electric vehicles has held up, Tanfield said, but a number of suppliers have missed their committed ramp-up plans due to technical and production issues with a number of specialized components required for the transition to the latest generation of vehicles.

These supply chain issues include hard tooling on battery container systems (this is the longest lead time component with a 16 week resolution), technical production issues with dashboard and driver interface modules, vehicle charger and electric power steering systems availability and delivery rates.

As a result, EV output was reduced by 112 vehicles in the second quarter.

Given the short payment terms, the revenue from these vehicles was forecast to have been collected. This has had an impact on working capital. These vehicles have been re-scheduled.

Although Tanfield expects that the supply chain issues will be resolved, there are areas where volume supply is still unproven. Forecast sales of EVs are now lower than expectations in the market. On top of that, input costs have risen for some key components, which, despite some of this being passed on, will result in EV margins coming under pressure.

The enquiry level and the number of new customers initiating trials are buoyant. The company is also in receipt of a number of letters of intent and statements of interest from targeted US customers based upon the availability of US specific electric vehicles. However we anticipate that due to the economic climate and the trading conditions our customers are experiencing, it will take longer for these trials to convert into volume orders.

In response to the Tanfield trading update, Valence Technology, which is supplying Li-ion batteries to SEV, issued a statement saying that it had fulfilled, on time, all quantities of previously scheduled orders for battery packs requested by Tanfield. Valence supplies only the battery packs, not the container systems or any of the other components.

Valence said that it is awaiting further direction from Tanfield with respect to the timing and/or quantity of any new orders. To date, Tanfield has not supplied Valence with a new forecast for additional purchases under the supply agreement between the two companies.

Our manufacturing model allows for the flexibility to redirect some product supply to other customers. This will benefit us as we re-evaluate the position of the Tanfield supply agreement in our existing manufacturing schedule.

—Robert L. Kanode, Valence president and CEO